MUMBAI, Feb 4: The National Stock Exchange (NSE) has decided to introduce index-based futures with a small contract size of 50 units of an index. The move has been prompted by the huge success of small contract sizes in the US futures market."The experience of the US markets has been extremely interesting.In September last year, the Chicago Mercantile Exchange launched a small contract size for the S&P-500 index and decided to trade it on the screen. The result is that no contract has become more popular than this one in the history of index-based futures in the US," said a top NSE official."The idea behind having large contract sizes was primarily because this form of trading was initially restricted to the large institutional investors. This is not the case any more as small investors too want to utilise the benefits of a hedging mechanism," the official added.
He said that going by this diversification in the investor profile NSE, too, has decided to restrict the contract size to 50 units of theselected index. "In any case we plan to introduce derivatives trading only through the screen. So we have an effective combination of a small contract size traded electronically," said the official."This means that if the Nifty index is selected for taking a futures position, one contract would comprise of 50 Nifties. For a greater exposure he could increase the number of contracts but the size of contract would remain 50. For example if the Nifty is ruling at 1,000 points, buying 50 Nifties would cost the investor say Rs 50,000. As a result, by paying a relatively small amount an investor can take a bet on an index. We would also consider some sub-baskets of stocks to enable the small investor to invest in index-based futures. The idea is to attract the institutions and retail investors alike," the official added.
Apart from the Nifty, NSE has decided to kick-off index-based futures with the Junior Nifty index which NSE officials feel has the right ingredients for becoming a successful index in this formof trading.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
